a study on implementation of ifrs in india...a study on implementation of ifrs in india . t.ramya...

A STUDY ON IMPLEMENTATION OF IFRS IN INDIA

T.Ramya Sree1

Dr.C.V.Ranjani2

ABSTRACT

International Financial Reporting Standards (IFRS) is becoming the global language of business

. Globalization has laid down a way for all the countries to adopt a identical set of accounting

standards. (IFRS) is closely related to the entire issue of globalization because it has changed

close economy into open economy. The implementation process of International Financial

Reporting Standards (IFRS) gained wide interest in the field of financial accounting research

community in India. The International Financial Reporting Standards (IFRS) represents a

essential change in accounting for transactions and reporting of financial statements. Financial

reporting in India is undergoing a momentous transformation owing to the adoption of Indian

Accounting Standards (Ind AS) that are converged with (IFRS). After several years in the

making, this has now become a reality for Indian companies, with the notification of 39 Ind AS

standards and the implementation roadmap by the Ministry of Corporate Affairs in February

2015. This will in turn improve India’s place in global rankings on corporate governance and

transparency in financial reporting. Around 150 countries have already adopted IFRS in their

economy. But in India, MCA has decided to go for full convergence of IFRS by 2018 through

IND AS.

KEY WORDS: IFRS ,IND AS , US GAPP ,MCA,convergence with IFRS.

INTRODUCTION

“A single set of high quality, understandable and enforceable global accounting standards that

require high quality, transparent and comparable information in financial statements and other

financial reporting to help participants in the world's capital markets and other users make

economic decisions”. There are many accounting standards in the world, with each country

using a version of their own generally accepted accounting principles, also known as GAAP.

These allow firms to report their financial statements in accordance to the GAAP that applies to

them. The complication lies within whether the firm does business in multiple countries. How

1 M.Com Final year student, Nizam College, Hyderabad, Telangana2 Assistant Professor and Head, Department of Commerce, Nizam College, Hyderabad, Telangana. Email:

[email protected]

www.zenonpub.com ISSN 2455-7331 - Vol II – Issue III

International Journal of Research in Applied Management, Science & Technology

mailto:[email protected]

can investors then deal with multiple standards, which ones are accurate, and how can

corporations be compared based upon their financials? The answer to these questions lies within

the adoption of the International Financial Reporting Standards, or IFRS, which is being

developed and supported by the International Accounting Standards Board (IASB).

In June 1973, the International Accounting Standards Committee (IASC) came into existence,

with the stated intent that the new international standards it released must “be capable of rapid

acceptance and implementation world-wide”. The IASC survived for 27 years, until 2001 when

the organization was restructured and the International Accounting Standards Board (IASB)

came into existence.

IASB stated that they would adopt the body of standards issued by the Board of the International

Accounting Standards Committee which would continue to be designated ‘International

Accounting Standards’ but any new standards would be published in a series called International

Financial Reporting Standards (IFRS).

On 2 January 2015, the Press Information Bureau, Government of India, Ministry of Corporate

Affairs (MCA) issued a note outlining the various phases in which Indian Accounting Standards

converged with IFRS (Ind AS) is proposed to be implemented in India, for Companies other than

Banking Companies, Insurance Companies and NBFCs. The application of Ind AS is based on

the listing status and net worth of a company. Ind AS will first apply to companies with a net

worth equal to or exceeding 500 crore INR beginning 1 April 2016. Listed companies as well as

others having a net worth equal to or exceeding 250 crore INR will follow 1 April 2017 onwards.

From April 2015 companies impacted in the first phase will have to take a closer look at the

details of the 39 new Ind AS currently notified. Ind AS will also apply to subsidiaries, joint

ventures, associates as well as holding companies of the entities covered by the roadmap.

Adoption means process of adopting IFRS as issued by IASB with or without modifications.

Convergences means harmonization of national GAAP with IFRS through design and

maintenance of accounting standards in a way that financial statements prepared with national

accounting standard are in compliance with IFRS .



Converging to global accounting standards i.e. IFRS facilitates comparability between

enterprises operating in different jurisdictions. Thus, global accounting standards would remove

a frictional element to capital flows and lead to wider and deeper investment in markets.

Convergence with IFRS is also in the interest of the industry since compliance with them would

be able to create greater confidence in the mind of investors and reduce the cost of raising

foreign capital. Convergence with IFRSs means adoption of IFRSs with the aforesaid exceptions,

where necessary. For a country to be IFRS-compliant, it is not necessary that IFRSs are applied

to all entities of different sizes and of different public interests.

Furthermore, comparison and benchmarking of financial data with international competitors

would be possible. Adoption of IFRS will make cross border acquisitions and joint venture

possible, and also provide access to foreign capital. This is because majority of stock exchanges

require financial information presented according to the IFRS.Early adoption of IFRS may offer

an edge to the companies over their competitors as they can claim early adoption. This, in turn,

will enhance the brand value of the company. The companies can trade their shares and securities

on stock exchanges world-wide. For this, most of the stock exchanges require financial

statements prepared under IFRS.

The implementation of IFRS in the corporate would require trained accountants, auditors, values

and actuaries. This will boost the growth of the service sector also as India can emerge as an

accounting services hub. Moreover, a single set of accounting standards worldwide would ensure

that auditing firms standardize their training and quality of work is maintained globally.

REVIEW OF LITERATURE

Various studies have been done in the field of IFRS across the globe. Proponents of IFRS often

claim that IFRS adoption leads to greater and higher-quality disclosures. When compared with

local accounting standards in most countries, IFRS is considered as being more fair-value-

oriented, reducing accounting flexibility allowed for the issuers of financial statements, and

incorporating the effects of economic events on firm performance into financial statements in a

timely manner.



Kamath and Desai (2014) in their study The Impact of IFRS Adoption on the Financial

Activities of Companies in India An Empirical Study, categorized the financial activities

into financial risk, investment activities, operating activities and debt covenant. And with

the help of ratios suggested that investment activities and operating activities showed

improvement, whereas financial risk and debt covenant showed no difference.

Dr. Mahender k. Sharma, did work in the field of “IFRS and India –Its problems and

challenges in 2013. The main objective of this study is to analyze the information

available on IFRS adoption process in India. It also focuses on the IFRS adoption

procedure in India and the utility for India in adopting IFRS.

Dr. U.V. Panchal (2012) in his article “IFRS – opportunities and challenges before India”

focused on challenges in the convergence with IFRS faced by India.

Dr. Bhuvender Choudhary, Rachit Gupta and Hemant Chauhan (2012) in their research

article “Convergence of IFRS in India- Strategy, Benefits and Challenges for

Infrastructure Industry” revealed that the adoption of IFRS will reflect more

appropriately the revenues of Indian Real Estate developers and their ability to deliver

projects. They also believe that IFRS deals with the market risks that are related to real

estate projects more effectively than the percentage completion method.

Ms. Archana Patro and Dr. V.K. Gupta (2012) in their article “Adoption of International

Financial Reporting Standards (IFRS) in Accounting Curriculum in India- An Empirical

Study” investigated the perceptions of IFRS among the Indian management students and

assessed the level of planning for adoption of the standards and stated that it would assist

the management schools and universities with decision regarding adoption of IFRS in

Indian Accounting curriculum.

Sarbapriya Ray (2012) in her article “Indian GAAP and its convergence to IFRS:

Empirical Evidence from India” studied the rationale behind introducing IFRS, made a

comparative analysis of the Indian Accounting Standards and IFRS, studied the



challenges involved in IFRS while adopting it in India, and analyzed the impact and

consequences on financial statements due to IFRS adoption in Wipro Ltd.

Goswami Suvaran and Sarkar Aniruddha (2011) I their paper “IFRS and its adoption in

India: A Study” an Endeavour has been made by the authors to ascertain the extent of

implementation of IFRS in India.

Pawan Jain (2011) in his research article “IFRS implementation in India Opportunities

and challenges ’’discuss the problems faced by the stakeholders in the

process of adoption of IFRS in India.

Lantto & Sahlstrom (2009) also undertook a study of key financial ratios of companies of

Finland and later found that the adoption of IFRS changes the magnitude of the key

accounting ratios and also showed that the adoption of Fair Value Accounting rules and

stricter requirements on certain Accounting issues are the reasons for the changes

observed in.

Rong-Ruey Duh, did study entitled of “Adopting IFRS: Implications for Accounting

Educators”, in the year of 2009. The main outcome of this study is to Approach to a

Single Set of Financial Reporting Standards in the World. In determining the cost of the

acquisition, marketable securities issued by the acquirer are measured at their fair value

which is their market price as at the date of the exchange transaction, provided that undue

fluctuations or the narrowness of the market do not make the market price an unreliable

indicator.

RESEARCH OBJECTIVES

To study the Indian scenario of IFRS adoption.

To know the adoption phases of IFRS in India.

To understand the applicability of IFRS.

To discuss about the issues and challenges relating to convergence.

RESEARCH METHODOLOGY



The present study is a blend of primary and secondary data but the major source of data

used for the study is secondary in nature. From different sources like ICAI website, MCA

website, other websites, articles from reputed national and international journals. Primary data is

collected through questionnaire method and data analysis is done by using MS-excel spread

sheets &IBM SPSS Statistics 20.

SCOPE OF THE STUDY

By adopting IFRS, there will be growth in the international business which leads to the

economic development of a country. It encourages International Investment which will lead to

more foreign capital inflow into the country. Investors would be provided with the information

that is more relevant, reliable, timely, and comparable across the jurisdictions. IFRS would

enhance the comparability between the Financial Statements of various companies across the

globe. The industry would be able to raise capital from the foreign markets at lower cost if it can

create confidence in the minds of the foreign investors that its Financial Statements comply with

the globally accepted Accounting Standards. It would reduce different accounting requirements

prevailing in various countries thereby enabling the enterprises to reduce the cost of

compliances. It serves international clients by providing professional opportunities. It would

increase their mobility to work in different parts of the world either in industry or practice. In this

context, it becomes necessary to make an analysis of the adoption of IFRS in India.

NEED OF THE STUDY

Whilst the impact of globalization and harmonization is currently being witnessed around the

globe, and the need to embrace the adoption of International Financial Reporting Standards

(IFRSs) is becoming increasingly evident, certain jurisdictions have been much quicker in their

embrace, adoption and adaptation of International Financial Reporting Standards, than others. As

well as highlighting the need for the adoption of International Financial Reporting Standards,

LIMITATIONS OF THE STUDY

In various practices of Accounting Reporting, this study is limited towards IFRS practice

only.



Primary data collected through questionnaire from the professors, lecturers and students

in accounting background and only 36 member responses was taken for the study .The

respondents are limited to Hyderabad . It cannot be treated as totally free from errors as

IFRS is in starting stage . Every possible attempt was made to get the information as

accurate as possible.

Questionnaire respondents can’t be considered totally unbiased.

Research period consists limited time, so it cannot use for a longer period.

DATA ANALYSIS AND INTERPRETATION

Data Analysis and Interpretation is done on the basis of primary data collected through

questionnaire.

What do you understand by one accounting in the world?

Frequency Percent Valid Percent Cumulative

Percent

Dont'know 8 22.2 22.2 22.2

IFRS 23 63.9 63.9 86.1

US GAAP 5 13.9 13.9 100.0

Total 36 100.0 100.0

Interpretation: 63.9% of the respondents are understood IFRS as one accounting in the world

&13.9% of respondents are understood as US GAAP .

From where did you got information about IFRS?


Percent

ICAI 13 36.1 36.1 36.1

Newspapers 8 22.2 22.2 58.3

Others 6 16.7 16.7 75.0

Textbooks 9 25.0 25.0 100.0

Total 36 100.0 100.0



Interpretation : Analysis shows that most of the respondents are aware of IFRS from ICAI ,

through textbooks 25.0%of respondents are aware of this ,22.2% of people know about IFRS

from newspapers , rest of them are aware of IFRS from various sources .

Had you taken any training on IFRS?

Frequency Percent Valid

Percent

Cumulative

Percent

No 35 97.2 97.2 97.2

Yes 1 2.8 2.8 100.0

Total 36 100.0 100.0

Interpretation : Out of the 36 participants ,only 1 respondent had taken training on IFRS ,rest

of them had not taken any kind of IFRS training as it is an upcoming topic .

Are you interested to take training on IFRS in the near future?


Percent

No 12 33.3 33.3 33.3

Yes 24 66.7 66.7 100.0

Total 36 100.0 100.0

Interpretation: 66.7%of the respondents replied positively as they are supporting the changes

in accounting field while 33.3% showed no interest ,it may say that they are unaware of IFRS .

Should educational institutes adopt IFRS in their curriculum?


Percent

Vali

d

No 4 11.1 11.1 11.1

Yes 32 88.9 88.9 100.0

Total 36 100.0 100.0



Interpretation: Most of the respondents( i.e 88.9%)are eagerly waiting for the adoption of IFRS

in their course curriculum. Few of them (i.e 11.1%)are not interested.

Will the knowledge of IFRS be helpful in your career?

Frequency Percent Valid

Percent

Cumulative

Percent

Valid

Maybe 9 25.0 25.0 25.0

No 2 5.6 5.6 30.6

Yes 25 69.4 69.4 100.0

Total 36 100.0 100.0

Interpretation : From the above table researcher came to know that most of the responses are

positive in nature ,few of them are replied negatively as they may opt any other career apart

from IFRS .

SUMMARY OF FINDINGS

Some interesting finding exposed through the survey It was found that there is an urgent need for

IFRS to be introduced to Accounting curriculum. Most of the respondents are aware of the term

IFRS,but not the actual contents of IFRS. There is no difference in knowledge about IFRS

between male and female respondents. Most of the Respondents are interested in taking the

course in their study curriculum.

CONCLUSION

With the implementation of IFRS by developed and some developing nations, India has no

option than to implement it and converge it with the Indian Accounting standards. Though there

may be implementation challenges, but with proper planning, implementation and control, the

financial reports can easily be aligned with the international standards.

Therefore India needs to develop its conference regarding to IFRS convergence. Also need to



develop some training programs for IFRS policies. For the purpose of successful conversion of

IFRS with Indian Corporate, India needs to have efficient professionals to operate in this field.

Apart from this, IFRS require the fair market value applications in financial reporting this may

create significant differences in financial information currently presented in financial reports.

This may result in the reduction in earnings of the company. Therefore Indian companies will

have to create awareness amongst its customers, investors and stakeholders as well as they need

to make clear themselves to explain the reason for this changes and maintain understanding,

transparency and reliability of their financial statements.

SUGGESTIONS

Government of India and the Institute of chartered Accountants of India (ICAI) should

take proper steps to organize conference, workshops, and other awareness programs in

order to create awareness among the accounting professionals and concerns regarding

the IFRS standards.

ICAI should give proper training to the accounting professional.

Taxation laws should address the treatment of tax liabilities arising on convergence

from India.

DIRECTIONS OF FUTURE RESEARCH

Further research may be conducted among different sections of populations with large

sample size. The impact of adoption and implementation of IFRS on various business

entities is to be surveyed for including in Accounting curriculum.

REFERENCES

Archana patro ,A,and Gupta,V.K(2012).Adoption of IFRS in accounting curriculum in

India-An empirical study procedure economics and finance.

Amit kumar and Gurpreetkaur.IFRS and INDIA :problems &challenges ,International

multi Research Journal.

Amit Kumar Chakrabarty Convergence of IAS with IFRS: Theoretical aspects and

Present status in India ,The Journal of Commerce.



Dr.A.K.Singh &Suchita Diwan,IFRS :Asnapshot of the new accounting standard in

India-international journal of Business Quantitative Economics &Applied Management

Research vol.1,issue.1,June 2014.

Dr.A.Vinayagamoorthy- IFRS and Indian current scenario- International Journal of

Scientific Research &Education vol.2,issue pp.753-760.

Ernakulam Branch of SICASA ICAI ,E-Newsletter.

Goswami ,S&Sarkar ,A,(2011).IFRS and its adoption in India-A study International

Journal of Business Economics &Management Research ,2(10),88-99.

Hira Desai “IND AS Converged with IFRS –Abhinav National monthly Referred Journal

of Research in commerce &Management .

Lantto A& Sahlstrom,P(2009).IFRS,Accounting &finance.

Pawan Jain –IFRS Implementation in India :Opportunities &Challenges.

Ravat D.S (2010) – student’s Guide to Accounting standards –Taxmann Publications pvt

.ltd –NewDelhi.

Revanayya kantayya IND –AS:A road map of IFRS in India ,department of commerce

,central university of Karnataka .

Shah, k.2014. IFRS &India:Opportunities &challenges ,Global journal of

multidisciplinary studies ,3(9) 165-188.

Sunita Ajay kumar Rai (2012). “IFRS –Problems &challenges in first time adoption”,

International indexed referred research Journal,ISSN -2250-2556,vol.1.

Venkatesh .D& professor M.Venkatesh –Opportunities and challenges in Adopting

IFRS in India.

Webliography

www.ifrs.org

www.pwc.services.in

www.iasplus.com

www.mca.gov

www.icai.org



http://www.ifrs.org/

http://www.pwc.services.in/

http://www.iasplus.com/

http://www.mca.gov/

http://www.icai.org/

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